PMI Scheduling Professional Certification (PMI-SP) Practice Exam

What is a distinguishing feature of a project governed by a fixed price contract?

1. It has flexibility in terms of scope changes

2. It is not affected by the actual costs incurred

3. It often leads to cost overruns for the seller

4. It requires frequent price renegotiation

The correct answer is: It is not affected by the actual costs incurred

A fixed price contract is characterized by the fact that the price agreed upon for the project is set and does not fluctuate based on the actual costs incurred during its execution. This means that once the contract is signed, the seller bears the risk of any cost overruns. If the project exceeds the estimated costs, the seller cannot pass those additional costs onto the buyer; they must absorb them instead. This structure incentivizes the seller to manage costs effectively and complete the project within the agreed budget. The buyer benefits from the predictability of expenses under this type of contract, as they know the total amount they will pay for the specified scope of work, regardless of the actual costs incurred throughout the project's lifecycle. The other choices involve elements that do not accurately reflect the nature of fixed price contracts. The flexibility in scope changes, the potential for cost overruns, and the need for frequent renegotiation are more characteristic of different contracting approaches, such as cost-plus contracts or time and materials contracts, where costs and scope can vary significantly based on project dynamics.